Australia is a trading nation whose material wealth and prosperity depends a great deal on its ability to import and export. But Australia's survival in the global trade system can never be taken for granted. Unlike the major economic powers, Australia is not large enough to be able to favourably influence its own terms of trade through tariffs and other forms of trade restrictions. In addition, Australia's relatively small open economy and the continuing importance of commodities in its export mix makes it vulnerable to even minor changes and shocks in the international economy. Nor can Australia rely on any ‘great and powerful’ friends for much relief from the vagaries of the global political economy. Australia does not enjoy the kind of secure access that other small economies have to the world's major economic powers under the North American Free Trade Agreement or in the European Union. And, compared to most other affluent countries, Australia's trade pattern is far more diverse. For example, in 1997 Australia's most important trade partner, Japan, accounted for only 20 per cent of its exports and just under 14 per cent of its imports. By contrast, Canada conducts 80 per cent of its two-way trade with its biggest trade partner, the United States.

Nor has there been much potential for a regional free trade agreement that would help Australia achieve economies of scale in manufacturing, or provide guaranteed market access for its services and commodities exports.